Why the ‘free market’ isn’t best for customers when it comes to

Updated: 14 minutes ago Published: 14 minutes ago

I find myself inspired to write by Mr. Robert Coulter’s recent commentary on prescription drugs and Medicare Part D. Mr. Coulter describes himself as a free-market activist who focuses on protecting the interest of mature Americans. Let’s presume that is true. Then I would say that his oversimplified commentary on Medicare Part D portrays a lack of understanding on how drug prices have gotten to where they are today.

To condense Mr. Coulter’s commentary to a few words, “Drug companies are good and charge fair prices; government attempts to negotiate drug prices are bad.” First, there is the idea that the negotiating arena is “reserved for bilateral transactions between drug manufacturers and insurers.” I would note that both drug manufacturers and insurers are in the business to make money, and both will charge what the market will bear. Doubtless insurers and drug company lobbyists had some input on this portion of the law.

One of the most interesting determiners of medication costs is the impact of pharmacy benefit managers, i.e., CVS Caremark, Express Scripts, and Optum RX. These companies negotiate with drug manufacturers for a fee to get insurers to allow drugs to be placed on a list of drugs the insurer will cover — the “formulary.” The drug company sells a drug to a pharmacy at a price. The cash price is inflated to be sure that a discount negotiated by the pharmacy benefit manager for an insurance company will still allow the desired profit. In other industries, this fee to the pharmacy benefit manager, or PBM, would be an illegal kickback, but an exception was made by Congress. Can we say lobbyists?

So this is how the process looks. Drug company makes a drug for a certain cost — call it $. Price is listed as $$$. The PBM negotiates with the insurance company to get the drug on the formulary and receives $ in its legal kickback, and the insurance company gets a “price break” and will cover the drug at the price of $$ so the drug company can still get a profit.

Medicare Part D is certainly a decent benefit, but far from perfect. A senior choses between multiple plans depending on what medications the plan covers. The plan is free to change its list of covered medications from year to year, and the senior’s medications can be changed at any time based on health requirements. In my practice, I can’t tell you how many seniors expressed utter confusion on how to choose which program.

Then there is that same old claim that medication costs reflect the cost of research by pharmaceutical companies. No mention is made of the vast amount of research done by publicly funded agencies provided to drug companies. The public does not get any portion of the profits from the drug manufacturer from this research.

There are many tricks used by drug companies to up their profits. Let’s look at three famous examples. EpiPens are epinephrine delivery…